Our challenge was to promote business and employment formalization by addressing problems of productivity, associativity, and decent work in local industrial manufacturing clusters. During 2023, the top key insights are the following: #1 Each cluster is unique, even when they belong to the same sector: The three selected territories provide different scenarios to analyze industrial upgrading in the Paraguayan apparel industry. Different products and histories configure territories where challenges are not the same. Pilar has long-standing lead firm that maintains productive relationships with at least 25 medium-sized workshops where labor is 81% female and associativity is starting to emerge through a pre-cooperative. Yaguarón houses over 160 workshops serving several lead firms and large factories, producing mostly jeans and employing male labor in higher proportion (55%). A local association exists with a long story of articulation but faces high levels of mistrust within the territory. Mariano Roque Alonso has mostly small precarious workshops, without stable relationships with lead firms. Labor is also women-led as in Pilar, and associativity is non-existent. In our first approaches, we have seen a high level of interest in working with the program to improve their workshops and their levels of associativity. #2 Known challenges met new emergent challenges we did not foresee For SME clusters in the apparel industry, the specific challenges we identified before we started included: (1) improving financial and administrative management, especially in planning and quality control, (2) improving equipment and physical infrastructure, (3) increasing access to and retention of qualified labor, and (4) strengthening and formalizing networks for interfirm collaboration. Based on our observations, we expanded this list of initial challenges to include new emerging challenges that are deeply local, among which we can speak of (5) the need for better access to credit and improved financial literacy to manage repayments, (6) existing local tensions and mistrust towards past associative initiatives and leaderships, or in some cases the inexistence of associativity and social capital, (7) low prices that make it difficult to address the challenge of maintaining qualified labor or improving working conditions, (8) the need for more occupational health and safety improvements to complement equipment and physical infrastructure, and (9) the size and maturity of garment SMEs coupled with a small market of potential lead firms makes it difficult to apply supplier development programs that have succeeded elsewhere without a high degree of adaptation and flexibility in its methods and processes. These new challenges call us to invest more efforts on how to improve our methods and tools to assess the levels of associativity and the conditions that may hinder its promotion, even before we engage with the design of interventions. We may need to also develop programs that can address these conditions and strengthen existing groups or associations even before the onset of other interventions, in order to increase their impact, or in some cases, it may be best not to address them at all as the conditions may not be conducive to a good outcome just yet. Lessons about new challenges leads to new learning questions, and we need to document them thoroughly in new knowledge products that can inform the next stages of our portfolio of interventions for this action plan. #3 Emerging lessons demand flexibility in the formulation of the program and its learning intent: As we started to know more about each cluster, we realized that the initial assumptions and hypotheses we had were no longer fully valid in the context of the selected clusters. Our initial learning intent was focused on how personalized improvement plans for SMEs coupled with new relationships with lead firms would enable increased productivity and improved working conditions. Once we understood that some workshops already had long-standing relationships with some firms, some workshop-lead firm relations were not going to be feasible, and that each cluster had unique characteristics, our question refocused toward the following formulation: how do the territorial context, the relations with lead firms (some of which already exists), and the characteristics of the garment workshops affect the type of productive and social upgrading feasible within garment clusters?. This new version of our learning question signals a new hypothesis where co-designed continuous improvement programs for garment SMEs that combine (1) training, (2) technical mentoring, and (3) institutional and gremial articulation, are the key interventions that can lead to improvements in production, labor and management conditions of workshops, conditioned by the characteristics of their territorial context, the characteristics of each workshop, and the relationship with lead firms (which may or may not exist). Elements that were originally part of the intervention itself (the lead firms), are now part of the context that conditions the effect of the intervention, changing the dynamics and the type of improvement programs we can co-design. This new hypothesis also led to the need for new institutional actors to be involved, namely, those engaged in professional training (SNPP, SINAFOCAL) and those who may provide financial support and training (BNF). These interventions need to articulate efforts with these institutions and provide tools to identify strengths and contributions appropriate to the kind of continuous improvements that are implemented in SMEs. #4 Informality remains high, not only in the garment industry: As we mapped SMEs in gastronomy, tourism, and automotive sectors, we found how labor informality (i.e., workers without access to social security) remains high, the same as what we continue to observe in the garment workshops. The businesses themselves, however, are mostly formal (i.e., have their unique contributor’s registry identification for fiscal purposes) in the tourism and automotive sectors. Gastronomy is mostly informal also in this dimensión. Labor informality remains, therefore, one of the key challenges we have to overcome. An interesting insight from the SMEs mapping with CAE is that women make most of the decisions in the gastronomy sector, while in automotive and tourism choices are mostly made by men. Gastronomy also purports a high degree of youth participating in the decision-making processes, much more than other sectors. #5 The rising need for digital transformation: One of the main findings of the cluster characterizations we carried out was the low level of access and use of ICTs (other than smartphones) by entrepreneurs, as well as limited access to technical training through the national or local government. These results were consistent in the three territories we analyzed: Yaguarón, Pilar, and Mariano Roque Alonso, and fall in line with findings from ICTs and Internet use official surveys, replicating nationwide digital divide patterns. Along the same line, the Acceleration Lab has been additionally developing learning loops focused on mapping the demand and supply of services offered by the Entrepreneur Support Centers (CAE), promoted by the Ministry of Industry and Commerce (MIC), anchored at the territorial level throughout the country, and managed locally jointly by a university, the municipality, and a local business association. In these activities, we also found that a great barrier for SMEs to improve their performance -for example, their communication with clients and new markets- is the limited access to ICTs and the scant knowledge to include digital tools within their productive activities. The preliminary results of the activities carried out within the framework of Local and the conclusions derived from mapping the needs of SMEs indicate that a necessary step for these companies to improve their competitiveness in an increasingly globalized world is developing digital skills and increasing their access and effective use of other types of ICTs beyond the smartphone. This need to develop, integrate, or incorporate digital skills, tools, and platforms in SMEs as an intervention that catalyzes their productive upgrading is often offer-driven by UNDP and other cooperation agencies, but although we have signals, we still don’t know enough about SMEs digital needs in Paraguay, nor about the actual link between digitalization and productivity, decent work, and associativity improvements. We have some ideas, and evidence from elsewhere, but to properly work on this, we need to invest time in assessing these needs and the levels of digital maturity, acceptability, adoption, and readiness of SMEs in the specific clusters we will focus on in the next few years, just as we learned that we needed to assess conditions for associativity before working on it. Some local actors are already doing this work, and we need to engage them: the Mathematics School at the National University of Asunción (FACEN) is one, and the Ministry of ICTs (MITIC) is another, among many others.

During 2023, our work on the portfolio of Enterprise and Employment Formalization had two main focuses: (a) a Funding Window project we named Local, and (b) a series of activities to develop local Entrepreneur Support Centers (Centros de Apoyo al Emprendedor, CAE) promoted by the Ministry of Industry and Commerce. (a) Local is already a case of UNDP picking up on our previous work, through the Poverty and Inequality Funding Window that is managed by BPPS, to expand it into new territories. During 2023, we were able to take our lessons learned into three clusters of garment workshops located in three different cities: Yaguarón in the region of Paraguari, Pilar in the southern region of Ñeembucu, and Mariano Roque Alonso in the capital metropolitan area, within the Central region. Based on sensing activities including surveys of over 300+ garment workshops, 15 workshops were selected to co-design and implement continuous improvements programs similar to the supplier development programs that is promoted by RBLAC, where SMEs are connected to Lead Companies as suppliers in their value chain, while implementing tailored improvements on productivity, decent work and associativity. The lessons we learned through these activities, which will continue during the first few months of 2024, have already led to a new round of Funding Window support that will expand the work into other territories, adding now a focus on digitalization of SMEs. (b) Similarly, our activities to develop services for CAE led to UNDP picking up some of the lessons we learned through the two mapping exercises that characterized 450+ SMEs in the gastronomy, tourism, and automotive sectors, to expand it thematically, through TRAC2 regional funds, into a program that will support capacity building on digital skills for entrepeneurs and SMEs. Further, both lines of work are being handed over, both in terms of methodologies and institutional relationships, to a new local CO funded project that will be the first to formally develop a portfolio of interventions, using the SIU portfolio approach methodology, to address challenges of formalization and employment. This is another form of scaling that we are documenting within this action plan. This portfolio will be worked with the Ministry of Industry and Commerce as main partner, and the Ministry of Labor and Social Security, Ministry of Social Development, among others, as key partners as well in its implementation.

https://www.undp.org/es/paraguay/blog/produccion-flexible-yaguaron https://www.researchgate.net/publication/373200303_Datos_utilizados_para_la_evaluacion_de_impacto_Experimentando_con_la_formalizacion https://www.undp.org/es/paraguay/blog/buenas-practicas-para-mejorar-la-productividad-local https://www.undp.org/es/paraguay/blog/entrelazando-saberes-la-colaboracion-de-la-artesania-textil-la-cadena-de-valor-de-la-confeccion-en-pilar https://www.undp.org/es/paraguay/blog/que-aprendimos-con-el-mapeo-de-las-mipymes-de-encarnacion-y-san-lorenzo  https://www.undp.org/es/paraguay/blog/que-nos-puede-decir-un-censo-sobre-tres-clusteres-de-confeccion-en-el-pais-y-por-que-es-importante-conocer-los-datos https://www.undp.org/es/paraguay/blog/co-creando-los-servicios-de-apoyo-las-mipymes-textiles-0 https://www.undp.org/es/paraguay/blog/hilando-cadenas https://www.undp.org/es/paraguay/blog/threading-chains

We used surveys because we needed to characterize the selected SMEs clusters to a level of detail that would allow us to select specific SMEs for the pilots, in ways that (1) they would match exactly with the demands from bigger lead companies that were seeking suppliers, and (2) they would be willing and able to take up proposed improvements into their production workflows, decent work conditions, and levels of associativity with other SMEs. Moreover, surveys were also used so that we could generate data that could later be used by other institutions or research initiatives in their own programming or analysis for public policy design, implementation, and/or evaluation. Once we started to work closely with selected SMEs, field observations became the most important type of data. They gave us perspective and helped us refine what we had already collected through surveys. A particular type of observational data came from our team of collaborators in the field, who were at all times instructed to keep detailed logs of their own observations and actions. Finally, within the realm of observation data, photography was particularly useful in the process of co-designing improvements to propose for each SMEs. Photography of garment workshops, for example, provided key details about their infrastructure, the working conditions available to their workers, the potential safety hazards or risks that weren’t properly addressed, among many other things.

In general ethnography and asset mapping (through surveys or mapping of key community actors and stakeholders) were necessary for both the design of the pilot continuous improvement programs and their implementation in the three clusters of garment workshops. The same applies in the case of our work with entrepreneurs who will benefit from digitalization capacity-building programs through the CAE. Co-creation was necessary in the process of designing services that will be provided by CAE. It was also key in the process of designing the continuous improvement programs for garment workshops. It allowed us to integrate the voices of the beneficiaries in ways that both improved the proposals and increased the commitment of the participants. Throughout the process of co-creation, Data Visualization was used to convey key data and insights from the surveys and the ethnographic observations we have previously collected and analyzed. Finally, we refer to the implementation of our interventions, both the continuous improvement programs with garment workshops and the digitalization training work with entrepreneurs and SMEs, as experimental Pilots of what can be seen as the prototype of a local industrial development policy at work.

One key lesson from this year’s activities is that field visits are fundamental to gain a more nuanced understanding of previously collected data. Surveys gave us detailed information about individual SMEs that we could later aggregate to find interesting patterns. Getting to know them in person and in their context, on the other hand, allowed us to observe and hear things we did not foresee when designing the surveys. For example, while visiting garment workshops, we learned how they felt about the prices they obtained from bigger companies that hire them. We saw a pattern of perceived unfairness in the prices they were able to achieve, while the increasing demands for quality and productivity outpaced the benefits. This, in turn, which was leading to many workshops looking for ways to become independent clothing brands on their own. Another interesting insight came from the socialization workshops, where we shared results from surveys with local stakeholders and the SMEs surveyed themselves. It was interesting to learn that the results were easy to understand and triggered all sorts of reflections and ideas on how to better support their local business ecosystem. Our principle of always going back to the community to return results was also becoming a way to generate knowledge and learning on its own. Introducing ethnographic data into the mix also means that many things can change along the way, so the third key insight is that the more you deepen your observation of the communities you work with, the more you need to be open to emerging and often serendipitous change. Sometimes, you even have to rethink the whole hypothesis of your intervention. Part of this happened when we realized the typical supplier improvement process with typical lead companies was not really feasible in our context, mainly due to the levels of maturity of both SMEs and lead companies. This realization forced us to revise our project and figure out ways in which we could still work with specific garment workshops even when they had no lead company associated to them.